Balance-of-payments accounting indicates that any surplus (deficit) in the current account must be offset by a deficit (surplus) in the financial account. Explain why this is so, using demand and supply curves of foreign exchange. Suppose that a country had a current account surplus. What would you expect to happen to the current account balance if there were a relative decline in the domestic interest rate? Why?

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The Answer of Balance-of-payments accounting indicates that any surplus (deficit) in the current account must be offset by a deficit (surplus) in the financial account. Explain why this is so, using demand and supply curves of foreign exchange. Suppose that a country had a current account surplus. What would you expect to happen to the current account balance if there were a relative decline in the domestic interest rate? Why?

Balance-Of-Payments Accounting Indicates That Any Surplus (Deficit) in the Current